Registration of Charges – CA Inter Law Study Material is designed strictly as per the latest syllabus and exam pattern.
Registration of Charges – CA Inter Law Study Material
Meaning & types of Charges
Question 1.
Mind Limited realised on 2nd May, 2022 that particulars of charge created on 12th March, 2022 in favour of a Bank were not filed with Registrar of Companies for Registration. What procedure should the company follow to get the charge registered with the Registrar of Companies?
Would the procedure be different if the charge was created on 12th February, 2022 instead of 12th March, 2022? Examine with reference to the relevant provisions of the Companies Act, 2013. [MTP-March 18, Aug. 18]
Or
MNC Limited realised on 2nd May, 2022 that particulars of charge created on 12th March, 2022 in favour of Bank were not registered with the Registrar of Companies. What procedure should the company follow to get the charge registered? Would the procedure be different if the company realised its mistake of not registering the charge on 7th June, 2022 instead of 2nd May, 2022? Explain with reference to the relevant provisions of the Companies Act, 2013. [MTP-Oct.19]
Answer:
Registration of Charge:
- As per Sec. 77(1) of the Companies Act, 2013, it shall be duty of the company creating a charge, to register the particulars of the charge, with the registrar within 30 days of creation of charge, in the prescribed manner.
- The Registrar may, on an application by the company, allow such registration to be made within a period of 60 days of such creation, on payment of such additional fees as may be prescribed.
- If the charge is not registered within the extended period as above, the company shall make an application and Registrar is empowered to allow such registration to be made within a further period of 60 days after payment of prescribed ad valorem fees.
- The application for delay shall be made and supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.
- In the instant case charge was created on 12th March, 2022 and on 02nd May, 2022 company realised that particulars of charge were not filed with Registrar of Companies for Registration.
- As 60 days has not expired from the date of creation of charge, so the company should immediately file the particulars of charge with the Registrar after satisfying him through making an application that it had sufficient cause for not filing the particulars of charge within 30 days of its creation.
If the company realises its mistake of not registering the charge on 7th June, 2022 instead of 2nd May, 2022, it shall be noted that a period of 60 days has already expired from the date of creation of charge. However, Sec. 77(1) provides opportunity for registration of charge by granting a further period of 60 days but the company is required to pay ad valorem fees.
Since first 60 days from creation of charge were expired on 11th May, 2022, company can still get the charge registered within a further period of 60 days from 11th May, 2022 after paying the prescribed ad valorem fees. The company is required to make an application to the Registrar in this respect giving sufficient cause for non-registration of charge.
Question 2.
Explain the term ‘charge’. State the circumstances under which necessity to create a charge arises. What is the time limit for registration of charge with the registrar? [May 18 (6 Marks)]
Answer:
Meaning of the term ‘Charge’:
The term “Charge” has been defined in Sec.. 2(16) of the Companies Act, 2013 as “an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage”.
Necessity for creating a charge:
The answer to this lies in the setup of raising capital by the companies. Generally, companies depend on share capital and borrowed capital for funding their projects. When the company raises money through borrowings, they may issue debentures or by obtaining loans from banks/financial institutions.
These banks/financial institutions need a surety regarding the repayment of their funds. Thus, they create a mortgage or hypothecation on the assets of the company for safe and secured lending of the funds. This creation of right on the assets and properties of the borrower companies, is known as a charge on assets.
Once charge is registered and filed, it becomes an information in public domain as to how much company has borrowed against its assets and from whom.
Time limit for registration of charge with the registrar:
As per Sec. 77(1) of the Companies Act, 2013, it shall be duty of the company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise and situated in or outside India, to register the particulars of the charge signed by the company and the charge holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the registrar within 30 days of creation.
- The Registrar may, on an application by the company, allow such registration to be made within a period of 60 days of such creation, on payment of such additional fees as may be prescribed.
- If the Charge is not registered within the extended period as above, the company shall make an application and Registrar is empowered to allow such registration to be made within a further period of 60 days after payment of prescribed ad valorem fees.
- The application for delay shall be made and supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.
Question 3.
What is the time limit for registration of charge with the registrar? Where should the company’s Register of charges be kept? State the persons who have die right to inspect the Company’s Register of charges. [Nov. 18 (6 Marks)]
Answer:
Time limit for registration of charge with the registrar:
Place of keeping company’s register of charges: According to section 85 of the Companies Act, 2013, every company shall keep at its registered office a register of charges.
Inspection of the register of charges and instrument of charges: The register of charges and instrument of charges, shall be open for inspection during business hours:
(a) by any member or creditor without any payment of fees; or
(b) by any other person on payment of such fees as may be prescribed, subject to such reasonable restrictions as the company may, by its articles, impose.
Question 4.
Rose (Private) Limited on 3rd April 2022 obtained ₹ 30 lakh working capital loan by offering its Stock and Accounts Receivables as security and ₹ 5 lakh ad hoc overdraft on the personal guarantee of a Director of Rose (Private) Limited, from a financial institution.
(i) is it required to create charge for working capital loan and ad hoc overdraft In accordance with the provisions of the Companies Act, 2013?
(ii) State the provisions relating to extension of time and procedure for registration of charges incase the above charge was not registered within 30 days of its creation, [Nov. 20 (4 Marks)]
Answer:
(i) Registration of Charge created on Working Capital:
Sec. 2(16) of the Companies Act, 2013 defines the term “charge” as an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes mortgage.
Whenever a company obtains working capital loans from financial institutions by offering stock and Accounts Receivables as security, company is required to create a charge on such property or assets in favour of the lender. Hence, for ₹ 30 lakh working capital loan, Rose (Private) Limited is required to create a charge on it.
There is no requirement to create a charge for ₹ 5 Lakh ad hoc overdraft on the personal guarantee of a director as charge is always created on the property or assets of a company and personal guarantee of director is not a property or asset of company.
(ii) Provisions relating to registration of charge and extension:
As per Sec. 77 of the Companies Act, 2013, in case the charge was not registered within 30 days of creation of the charge, the Registrar may, on an application by the company, allow such registration to be made within a period of 60 days of such creation (i.e. another 30 days are granted after the expiry of original 30 days), on payment of additional fees as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the company is required to make an application to the Registrar in the prescribed form. It should be supported by a declaration from the company signed by its company secretary or a director that such belated filing shall not adversely affect the rights of any other intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient cause for not filing the particulars and the instrument of charge, if any, within the original period of 30 days. Only then he will allow registration of charge within the extended period. Further, requisite additional fee or ad valorem fee, as applicable, must also be paid.
Question 5.
How will a copy of an instrument evidencing creation of charge and required to be filed with the Registrar be verified? [MTP-March 21]
Answer:
Verification of instrument evidencing creation of charge:
As per Rule 3 of Companies (Registration of Charges) Rules, 2014, a copy of every instrument evidencing any creation or modification of charge and required to be filed with the Registrar shall be verified as follows:
(a) In case property is situated outside India: Where the instrument or deed relates solely to the property situated outside India, the copy shall be verified by a certificate issued either
- under the seal, if any, of the company, or
- under the hand of any director or company secretary of the company or an authorised officer of the charge holder, or
- under the hand of some person other than the company who is interested in the mortgage or charge.
(b) In case property is situated in India (whether wholly or partly): Where the instrument or deed relates to the property situated in India (whether wholly or partly), the copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorised officer of the charge holder.
Question 6.
Moon Light Ltd. is having its establishment in USA. It obtained a loan there creating a charge on the assets of the foreign establishment. The Company received a notice from the Registrar of Companies for not filing the particulars of charge created by the Company on the property or assets situated outside India.
The Company wants to defend the notice on the ground that it shall not be the duty of the company to register the particulars of the charge created on the assets not located in India. Do you agree with the stand taken by the Company? Give your answer with respect to the provisions of the Companies Act, 2013. [Jan. 21{3 Marks)]
Answer:
Registration of Charge:
- As per Sec. 77 of the Companies Act, 2013, it shall be duty of the company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise and situated in or outside India, to register the particulars of the charge.
- Thus, charge may be created within India or outside India. Also the subject-matter of the charge i.e. the property or assets or any of the company’s undertakings, may be situated within India or outside India.
- In the given situation, the company has obtained a loan by creating a charge on the assets of the foreign establishment. As per the provisions of Sec. 77, it is the duty of the company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise and whether situated in or outside India, to register the particulars of the charge.
Conclusion: Stand taken by Moon Light Ltd. not to register the particulars of charge created on the assets located outside India is not correct.
Question 7.
Define Charge. Who has the authority to verify the instrument of charge created for property situated outside India? Give your answer as per the provisions of the Companies Act, 2013. [MTP-Nov. 21]
Question 8.
Krish Limited created a charge on its assets on 2nd February, 2022. However, the company did not register the charge with the Registrar of Companies till 15th March, 2022.
(a) What procedure should the company follow to get the charge registered?
(b) Suppose the company realises its mistake of not registering the charge on 27th May, 2022
(instead of 15th March, 2022), can it still register the charge? Advise with reference to the relevant provisions of the Companies Act, 2013. [RTP-May 22]
Answer:
Registration of Charge:
As per Sec. 77(1) of the Companies Act, 2013 it shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the chargeholder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within 30 days of its creation.
However, under clause (b) of first proviso to section 77 (1) the Registrar is empowered to extend the period of 30 days by another 30 days (i.e. sixty days from the date of creation) on payment of prescribed additional fee.
Conclusion: Based on the above stated provisions, following conclusions may be drawn:
(a) Krish Limited did not register the charge with the Registrar of Companies till 15th March, 2022. In this case particulars of charge were not filed within the prescribed period of 30 days (i.e. till 4th March, 2021). Taking advantage of clause (b) of first proviso to Sec. 77(1), Krish Limited should immediately file the particulars of charge with the Registrar after satisfying him through making an application that it had sufficient cause for not filing the particulars of charge within 30 days of its creation.
(b) Clause (b) of second Proviso to Sec. 77(1) provides another opportunity for registration of charge by granting a further period of 60 days but the company is required to pay ad valorem fees. If the company realises its mistake of not registering the charge on 27th May, 2022 instead of 15th March, 2022, it shall be noted that a period of 60 days has already expired from the date of creation of charge.
Since the first 60 days from creation of charge have expired on 3rd April, 2022, Krish Limited can still get the charge registered within a further period of 60 days from 3rd April, 2022 after paying the prescribed ad valorem fees. The company is required to make an application to the Registrar in this respect giving sufficient cause for non-registration of charge.
Application for registration of change by chargeholder (Sec. 78)
Question 9.
Beauty Limited obtained a working capital loan from a Nationalized Bank against the hypothecation of Stocks & Accounts receivable of the Company. An instrument creating the charge was duly signed by the Company and the Bank. The Company is not willing to register the charges with the Registrar of Companies, in the light of the provisions of the Companies Act, 2013, discuss:
(i) Is there any provision empowering the Nationalized Bank (charge holder) to get the charges registered?
(ii) When can the Registrar refuse to register the charges in the present scenario? [May 22 (4 Marks)]
Answer:
Registration of Charge by Chargeholder:
(i) As per Sec. 78 of the Companies Act, 2013, where a company fails to register the charge within the
period 30 days, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed.
The Registrar may, on such application, within a period of 14 days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed.
(ii) Registrar shall not allow such registration by the charge-holder, if the company itself registers the charge or shows sufficient cause why such charge should not be registered.
Registration of charge to act as constructive notice (Sec. 80)
Question 10.
Mr. Antriksh purchased a commercial property in Delhi belonging to NRT Limited after entering into an agreement with the Company. At the time of registration, Mr. Antriksh comes to know that the title deed of the company is not free and the company expresses its inability to get the title deed transferred in his name contending that he ought to have the knowledge of charge created on the property of the Company. Explain, whether the contention of NRT Limited is correct? [RTP-May 18, MTP-Oct.19, March 21, Nov. 21]
Answer:
Date of Notice of Charge:
As per Sec. 80 of the Companies Act, 2013, where any charge on any property or assets of a company or any of its undertakings is registered u/s 77 of the Companies Act, 2013, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.
Hence, Sec. 80 clarifies that if any person acquires a property, assets or undertaking in respect of which a charge is already registered, it would be deemed that he has complete knowledge of charge from the date of its registration.
Mr. Antriksh, therefore, ought to have been careful while purchasing property and should have verified beforehand that NRT Limited had already created a charge on the property.
Conclusion: Based on the above stated provisions, it can be concluded that the contention of NRT
Limited is correct.
Company to report satisfaction of charge (Sec. 82)
Question 11.
State with reasons, whether the following statements are True or False?
(i) The Registrar of Companies is not bound to issue notice to the holder of charge, if the company gives intimation of satisfaction of charge in specified form and signed by the holder of charge.
(ii) The Registrar of Companies may allow the company or holder of charge to file intimation within a period of 300 days of satisfaction of charge on payment of fee and additional fees as may be prescribed. [May 19 (2 Marks)]
Answer:
Satisfaction of Charge:
(i) As per proviso to Sec. 82(2) of the Companies Act, 2013, no notice shall be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge. Hence, the given statement is true.
(ii) As per Sec. 82(1) of the Companies Act, 2013, company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge earlier registered, within a period of 30 days from the date of such payment or satisfaction.
However, Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction on payment of prescribed additional fees. Hence the given statement is true.
Question 12.
DN Limited hypothecated its plant to a Nationalised Bank and availed a term loan. The Company registered the charge with the Registrar of Companies. The Company settled the term loan in full. The Company requested the Bank to issue a letter confirming the settlement of the term loan.
The Bank did not respond to the request State the relevant provisions of the Companies Act, 2013 to register the satisfaction of charge in the above circumstance. State the time frame up to which the Registrar of Companies may allow the Company to intimate satisfaction of charges. [Nov. 19(5 Marks)]
Answer:
Intimation regarding Satisfaction of Charge:
Sec. 82(1) of the Companies Act, 2013, requires a company to give intimation of payment or satisfaction in full of any charge earlier registered to the Registrar in the prescribed form. The intimation needs to be given within a period of 30 days from the date of such payment or satisfaction.
Extended period of intimation: Proviso to Sec. 82(1) extends the period of intimation from 30 days to 300 days. Accordingly, it is provided that the Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction on payment of prescribed additional fees.
Power of Registrar to make entries of satisfaction and release in absence of intimation from Company
Question 13.
Ranjit acquired a property from ABC Limited which was mortgaged to OK Bank. He settled the dues to OK Bank in full and the same was registered with the sub-registrar who has noted that the mortgage has been settled. But neither the company nor OK Bank has filed particulars of satisfaction of charge with the Registrar of Companies. Can Mr. Ranjit approach the Registrar and seek any relief in this regard? Discuss this matter in the light of provisions of the Companies Act, 2013. [MTP-Oct 20]
Answer:
Power of Registrar to make entries of satisfaction:
Sec. 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to the satisfaction and release of charges even if no intimation has been received by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole or in part or that the part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking, then he may enter in the register of charges a memorandum of satisfaction that:
- the debt has been satisfied in whole or in part; or
- the part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been received by him from the company.
Information to affected parties: The Registrar shall inform the affected parties within 30 days of making the entry in the register of charges.
Issue of Certificate: As per Rule 8(2) of the Companies (Registration of Charges) Rules, 2014, in case the Registrar enters a memorandum of satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.
Therefore, Ranjit can approach the Registrar and show evidence to his satisfaction that the charge has been duly settled and satisfied and request the Registrar to enter a memorandum of satisfaction noting the release of charge.
Question 14.
What are the powers of Registrar to make entries of satisfaction and release of charges in the absence of any intimation from the company. Discuss this matter in the light of provisions of the Companies Act, 2013. [RTP-Nov. 19, Nov. 20, MTP-Oct. 18, March 19]
Answer:
Power of Registrar to make entries of satisfaction and release:
Sec. 83 of the Companies Act, 2013 provides powers to the Registrar to make entries with respect to the satisfaction and release of charges where no intimation has been received by him from the company. Accordingly:
(i) The Registrar may, on evidence being given to his satisfaction with respect to any registered charge:
(a) that the debt for which the charge was given has been paid or satisfied in whole or in part; or
(b) that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking, enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, despite the fact that no intimation has been received by him from the company.
(ii) The Registrar shall inform the affected parties within 30 days of making the entry in the register of charges kept u/s 81(1).
As per Rule 8 of the Companies (Registration of Charges) Rules, 2014 with respect to the satisfaction
of charge:
- A company or charge holder shall within a period of 300 days from the date of the payment or satisfaction in full of any charge registered under Chapter VI, give intimation of the same to the Registrar in Form No. CHG-4 along with the fee.
- Where the Registrar enters a memorandum of satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.
Duty to Register Charges, etc. Sec. 77
Question 15.
Define the term “Charge” and also explain what is the punishment for default with respect to registration of charge as per the provisions of the Companies Act, 2013. [MTP-April 19, RTP-Nov. 21]
Answer: Meaning of the term ‘Charge’:
The term charge has been defined in section 2 (16) of the Companies Act, 2013 as an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.
Punishment for contravention:
As per Sec. 86 of the Companies Act, 2013, if any company contravenes any provision relating to the registration of charges, the company shall be liable to a penalty of ₹ 5 lakhs and every officer of the company who is in default shall be liable to a penalty of ₹ 50,000.
If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action u/s 447.
Rectification by Central Government in Register of Charges (Sec. 87)
Question 16.
ABC Limited created a charge in favour of OK Bank. The charge was duly registered. Later, the Bank enhanced the facility by another ₹ 20 crores. Due to inadvertence this modification in the original charge was not registered. Advise the company as to the course of action to be pursued in this regard. [MTP-Oct. 20]
Answer:
Rectification by C.G. in register of charges:
Provisions relating to rectification of charges are covered u/s 87 of the Companies Act, 2013 read with Rule 12 of Companies (Registration of Charges) Rules, 2014. Accordingly, Central Government is empowered to order rectification of Register of Charges in the following cases of default:
(a) when there was omission in giving intimation to the Registrar with respect to payment or satisfaction of charge within the specified time;
(b) when there was omission or mis-statement of any particulars in any filing previously made to the Registrar. Such filing may relate to any charge or any modification of charge or with respect to any memorandum of satisfaction or other entry made u/s 82 (Company to report satisfaction of charge) or u/s 83 (Power of Registrar to make entries of satisfaction and release).
Before directing that the ‘time for giving the intimation of payment or satisfaction shall be extended’ or the ‘omission or mis-statement shall be rectified’, the C.G. needs to be satisfied that such default was accidental or due to inadvertence or because of some other sufficient cause or it did not prejudice the position of creditors or shareholders.
- The application in Form CHG-8 shall be filed by the company or any interested person.
- The order of rectification shall be made by the Central Government on such terms and conditions as it deems just and expedient.
- The company is advised to immediately file an application for rectification of the Register of Charges in Form No. CHG- 8 to the Central Government u/s 87 of the Companies Act, 2013.
Question 17.
Explain the provisions of the Companies Act, 2013 relating to rectification by Central Government in register of Charges. [MTP-March 18, Aug. 18]
Answer:
Rectification by Central Government in register of charges:
Sec. 87 of the Companies Act, 2013 empowers the C.G. to make rectification in register of charges. Accordingly, the Central Government on being satisfied that:
(a) the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter; or
(b) the omission or misstatement of any particulars, in any filing previously made to the Registrar with respect to any such charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company, it may, on the application of the company or any person interested and, on such terms, and conditions as it deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified.
Rule 12 of Companies (Registration of Charges) Rules, 2014:
The C.G. may on an application filed in Form No. CHG-8 in accordance with Sec. 87:
(a) direct rectification of the omission or misstatement of any particulars, in any filing, previously recorded with the Registrar with respect to any charge or modification thereof, or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83,
(b) direct extension of time for satisfaction of charge, if such filing is not made within a period of 300 days from the date of such payment or satisfaction.